Today the financial world awaits the Federal Reserve’s interest rate decision, shortly after the release of consumer price index (CPI), which indicated inflation that was lower than expected. However, many investors predict that the Fed will continue to keep the interest rates higher, even if the inflation rate is gradually decreasing. This comes at the backdrop of a declining dollar and a surging cryptocurrency market in the global economy.
The Fed Chairman Jerome Powell has in the past noted that inflation statistics will be major determinants of future interest rates. That said, on the basis of today’s CPI release there could well be grounds for the Fed to pause and think again about quite such an aggressive rates line. But, the latest NFP figures which pointed to healthy job creation may shift the balance in the direction of either retaining or even raising interest rates to prevent the economy from overheating.
Cryptocurrency Market Response
Major cryptocurrencies Bitcoin ($BTC ) and Ethereum ($ETH ) have surged in response to the weakening dollar. For instance, Bitcoin has gained about 4% and trading above $70,000. On the other hand, Ethereum has also shown resilience as it climbed by approximately 4%. Altcoins like Worldcoin ($WLD ), the recently listed $IO and others are experiencing similar bullish trends.
Potential Outcomes and Market Reactions
Rate Hike: A rate hike would likely strengthen the dollar, potentially causing a temporary correction in the crypto market as investors move towards safer assets.
Rate Cut: A rate cut could weaken the dollar further, driving increased investment into riskier assets like cryptocurrencies. This scenario might lead to a continued rally in the crypto market.
No Change: Maintaining the current rates might lead to mixed reactions. Investors would remain cautious, awaiting clearer signals from future economic data and Fed meetings.
The lower CPI suggests easing inflationary pressures, which could argue for a more dovish Fed stance. Meanwhile, strong NFP data indicates a robust labor market, which might support a continued hawkish approach to prevent inflation from resurging. The interplay of these factors makes today's decision particularly pivotal.
Therefore, investors get ready for a volatile crypto market as the Fed's announcement could significantly impact market dynamics. The uptrend trend in cryptocurrencies might continue if the Fed signals a softer stance on rates. A surprise hawkish move could induce short-term corrections. Regardless, the long-term prospects for major cryptos remain strong, especially with the ongoing institutional interest and upcoming regulatory developments.
